Sucheta Dalal :Economy wins slowdown battle but loses against prices in 2009
Sucheta Dalal

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Economy wins slowdown battle but loses against prices in 2009  

December 31, 2009

India achieved the distinction of being the second-fastest growing economy amid the global recession in 2009, but the joy was marred by the decade's sharpest rise in food prices to the chagrin of the common man, reports PTI.


For a country that continued to lose on its exports throughout the year that has gone by, the economy achieved a remarkable growth of about 7% (during April-September 2009) on the back of focused government stimulus in tandem with well-articulated interest rate-cum-monetary policy of the RBI.


But it is a paradox of sorts that the price line, that dipped from a 13-year high into the negative zone at one point during the year, climbed sharply again, with food inflation touching more than a decade's high of 20%.


From the growth focus, the government had to concentrate on fighting natural disasters ranging from drought to floods in different parts of the country that led to shortages of food grains, fruits and vegetables. The resultant spurt in their prices caused a political storm.


To add to this roller-coaster, developments in the economy, including in the share market, the general elections in May that helped the Congress-led United Progressive Alliance (UPA) to retain power, lent further colour.


In the New Year, fear of rising inflation will continue to influence economic policies, whether it is the monetary review to be announced by the Reserve Bank of India (RBI) on 29th January or the Budget to be unveiled by finance minister Pranab Mukherjee towards the end of February.


Powered by strong doses of three stimulus packages, the Indian economy did well, only next to China in terms of growth. Despite widespread drought and devastating floods in parts of the country, the economy during 2009-10 is estimated to expand by 8%, up from 6.7% in the previous fiscal.


India's growth during 2008-09 dipped from 9% on account of the impact of the global financial crisis.


Stimulus, green shoots and exit policy will continue to remain the buzzwords as the government in the coming year will move forward to withdraw the extraordinary steps it took to fight the impact of the global meltdown, domestic drought and spiralling food prices.


The focus of economic planners during the initial months of 2009 was to continue the stimulus to tide over the impact of the financial crisis triggered by the collapse of America's iconic banker Lehman Brothers in September 2008.


Not waiting for the election results, Mr Mukherjee, while presenting an interim budget in February 2009, provided the third stimulus package to the industry by announcing tax cuts and raising public expenditure.


These stimulus packages, backed by easing of monetary policy by the RBI, yielded some results which economists described as "green shoots". As the green shoots appeared, the economy started looking up and in the second quarter (July-September 2009-10) recorded a high growth rate of 7.9%, much more than anticipated by any analyst or think-tank.


The impact, however, was not so visible on the external front as exports continued to remain in the negative zone for most part of the year. This has been on account of slow recovery in the external market.


Now with the US economy recording a growth of 2.2% during the quarter (July-September), though less that the initial estimate of 3.5%, Indian exports too may look up in the future.


After a gap of 13 months, exports in November registered a growth of 18% and the rise might continue with the global economy gradually recovering from the recession, described as the worst since the Second World War.


Buoyed by the performance in the second quarter, the Planning Commission and the Prime Minister's Economic Advisory Committee have talked about revising their growth projections once the data for the second quarter was made public. Both these organisations had projected a 6.5% growth rate for the current fiscal.

Yogesh Sapkale

-- Sucheta Dalal